China: Safety checks tighten thermal coal supply

• Inspections tighten supply, supporting coal prices
  
  
• Weak buying interest limits port price gains
  
  

Mysteel Global: Persistent mine safety inspections across major coal hubs in northern China continued to tighten spot thermal coal supply and lift mine-mouth prices on June 17, which also provided support to the portside market. However, growing buyer resistance to spot procurements at northern ports eroded the upward momentum and kept trading activity subdued.

Mysteel's survey on 110 thermal coal mines across Shanxi, Shaanxi and Inner Mongolia -- China's top three coal-producing areas - showed that 12 of them raised prices by an average of Yuan 15/tonne ($2.2/t) on Wednesday, while only 1 mine cut prices by Yuan 20/t. The remaining 97 maintained prices unchanged.

In Inner Mongolia's Ordos city, mine sources attributed recent price increases to frequent inspections that have tightened local availability. Mine inspections in the autonomous region mainly resulted in two to three days of suspensions every time, they said. "Production has definitely been affected. Every inspection means a halt, so prices keep rising," a local source in Ordos confirmed.

In North China's Shanxi province, a local source noted that even mines that are still operating have limited spot volumes available because most of their coal output is locked into long-term contract commitments. Moreover, a central inspection team has been conducting a province-wide review in Shanxi since June 11, with inspections set to last until June 25, causing a growing number of temporary suspensions. While some mines have resumed operations after passing local-level checks, they are still operating at reduced rates, sources said.

Rising pithead prices and tight supply from major coal-producing regions could have lifted spot coal prices at the northern ports. However, port-side coal prices have actually stayed largely unchanged for nearly two weeks, as many downstream buyers sit on the sidelines, trying to depress prices to a propitious level before taking positions, sources said.

On Wednesday, Mysteel assessed 5,500 kcal/kg NAR thermal coal at northern ports at Yuan 861/tonne ($127.4/t) FOB with VAT, unchanged for an eighth straight session. The 5,000 kcal/kg NAR grade sat at Yuan 772/t and 4,500 kcal/kg NAR at Yuan 675/t, both flat from the last session.

The daily coal burn at the six major coastal power groups stood at 766,600 tonnes on Tuesday, up 0.8% from a day before but still down 2.1% on week. Their inventories were enough to cover 17.9 days of use, down from 18.1 days on Monday but above the 15-day critical levels, Mysteel noted.

Persistent heavy rain in South China tempered residential power demand, with the rain belt expected to shift northwards to the middle and lower reaches of the Yangtze River in coming days, indicating a decline in power consumption in East China, sources noted.

Coastal freight rates continued to slide yesterday. With thermal power generation subdued and most requirements covered by contracted coal, fresh cargo orders from coastal utilities were scarce. Ample vessel supply weighed on rates further.

Mysteel's records showed that freight rates for 50,000-60,000 DWT vessels from Qinhuangdao to Guangzhou reached Yuan 68.5/t on Wednesday, down from Yuan 69.7/t a day ago and marking a downward trend since a recent high of Yuan 75/t on May 7.

A meaningful freight recovery may only materialize after the rainy season ends in early July at the earliest, when a rapid onset of high temperatures in southern and eastern China could push power loads up and trigger a restocking cycle, sources said.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.